U.S. Michigan consumer sentiment rises above estimate

Confidence among American households rose more than projected in February in a gain that could boost consumer buying, the largest part of the economy.

The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 77.6 from 73.8 in January. The gauge was projected to match the preliminary reading of 76.3, according to the median estimate of 58 economists surveyed by Bloomberg.

Consumers are contending with an increase in payroll taxes and concerns that federal spending cuts starting today may hold back economic expansion. Still, payrolls added 157,000 jobs in January and initial jobless claims fell more than projected last week, Labor Department figures showed. The job gains combined with rising property values may be enough to bolster Americans’ faith in the economy and promote consumption.

“The fact that confidence is picking up will make consumers feel more confident about drawing down savings to spend,” said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch in New York. “The challenge that consumers face is that take-home pay has been considerably reduced as the result of higher taxes, and with lower income, spending will likely struggle.”

The Standard & Poor’s 500 Index fell 0.4% to 1,508.78 at 10:26 a.m., after the confidence report was released. The yield on the benchmark Treasury note fell to 1.86% from 1.88% late yesterday.

Bloomberg Survey

Estimates for the confidence measure ranged from 74 to 78, according to the Bloomberg survey. The index averaged 64.2 during the recession ended in June 2009, and 89 in the five years prior to the 18-month slump.

The Michigan survey’s current condition index, which measures whether Americans think it’s a good time to make big investments and gauges consumers’ view of their personal finances, rose to 89 in February from 85 in the prior month. The preliminary reading was 88 for February.

The index of expectations six months from now, which more closely projects the direction of consumer spending, rose to 70.2 in February from 66.6 the month before. The preliminary reading was 68.7 for February.

Consumers in today’s confidence report said they expect an inflation rate of 3.3% over the next 12 months, the same as in January. Over the next five years, Americans expected a 3% rate of inflation, up from January’s 2.9%.